Views aired on Third World’s gripe

Press, 8 September 1982, Page 14

Views aired on Third World’s gripe

From G. G. SHAND, ‘New Zealand Herald’ Toronto

While the world’s international bankers and Finance Ministers are pond v ering the troubled state of the world economy in half a dozen luxury Toronto hotels, another much less publicised conference will be conducted a few miles away. At the University of Toronto, Canadian human; rights, labour and church organisations have organiseda conference to air their views on how the policies of the World Bank and International .Monetary fund affect the lives of Third World people. The leaders of those nations have arrived in Canada, determined to try to convince bankers and richnation lenders that it is high time they dug deeper into their pockets to produce the funds necessary for some sort of world economic recovery. Judging by the hard-line attitude adopted by the rich nations — in the traditional pre-conference meetings — that hope is seen as extremely forlorn. Already there are clear signs that the I.M.F. meeting will basically be a clash between rich and poor nations, with the haves and have-nots far apart on how best to distribute the world’s diminishing resources. According to those attending the university conference, the fault lies simply with the fact that the I.M.F. and World Bank are pawns of the ideological bias of western industrialised nations.

This, they said, had directly contributed to the downfall of the poorer nations.

“Do not expect to see' any fine, morality in I.M.F. policy,” said Mr Cranford Pratt, a University of

Toronto political science professor and specialist in Third World development. "When the Americans call the tune, borrowing countries have to dance." Mr Pratt said that according to the economic policy applied by President Reagan in the United States and on a world scale by the I.M.F. and the World Bank, the root of all economic evil is too much spending in relation to production. ■ Mr Pratt said that the enemies of I.M.F. policy were “big government” involved in too many social programmes, the deficits socialised governments incur, and the overprinting of money. “The medicine of monetarism is the I.M.F.'s prescript tion. It includes measures to shrink government’s role in the economy and restrict government spending,” he said.

He claimed it did not work for the poorer nations, which did not earn the export receipts necessary at a time of world recession.

They get squeezed out in their attempts to pay off mounting interest bills on mounting debts. That is really at the heart of the developing world’s gripe at the I.M.F. conference.

It is one interestingly shared to a degree by the Prime Minister, Mr Muldoon, who complained that the I.M.F.'s conditionality — in other words the tough conditions laid down for borrowers — has helped lead to some of the problems. Another point Mr Muldoon makes, which may be of less concern to those attending the university conference, is that the continued economic instability could seriously weaken political stability in the Western world.

' It could undermine Western h>-opgration, and lead to more protectionism, something New Zealand has long feared and fought against Mr Muldoon, with the support of the developing countries, has also warned that a continuation of the present debt-servicing problems could lead to the international collapse of the world monetary system. Like the conditionality argument, this is totally rejected by the chiefs at the I.M.F. Private bankers have agreed with that reasoning, telling journalists such a collapse was unlikely, although they conceded that the world may face many more years of slow growth and high unemployment. Yet, while private bankers discounted talk of a collapse, officials' for the General Agreement on Tariffs and Trade issued a report in Geneva, warning that a collapse is possible. World trade, they said, was showing increasingly dangerous parallels to the 19305, “with the international banking system under threat and protectionism on the rise.”

Other reports tend to support the G.A.T.T. view and Mr Muldoon’s that a collapse is possible unless the two big financial institutions, the World Bank and the 1.M.F.. can come up with some positive measures to sort out the plight of the Third World. The main issue at the I.M.F. conference will be borrowing and the inability of big debtors — such as Mexico, Argentina and several other countries - to meet their commitments without a big ‘'bailing out job.” Borrowing by developing countries-had soared by the mid-19705. According to the 1.M.F., the debts of those nations which do not export oil rose to almost $U5437,000 million last year from $U5374,000 million in 1980 and $U5147,000 million in 1975.

According to one survey, the default danger is twofold. In the first place, failure to repay loans could bankrupt weaker financial institutions and cause a crisis of confidence in the international banking system.

Secondly, the banks themselves are highly nervous over their exposure to default. They may become super cautious lenders, making it extremely difficult for even creditworthy countries to finance development needs.

This, it is said, could lead countries to cut back on

developmenfand import less from the Western world, thus reducing worldwide economic activity and increasing unemployment even more. In 1980, according to the World Bank, about 25 per cent of the West's manufacturing exports went to developing nations. Developing countries have been hit hard by. the global recessions, which has precipitated a decline in international demand for their products and a sharp drop in the prices of many of the commodities thev ship to the West.

They have not achieved the export earnings necessary to pay their international debts and finance their imports. So there is concern about the growing possibility of loan defaults and much of the 1.M.F.-World Bank discussions will centre on ways of supporting the global banking system through its period of greatest strain since the 19305.

Many Western nations have made it clear that they would like to see the lending power of the LM.F. significantly increased so that large-scale extra funds could be provided to developing countries having difficulty repaying their debts.

At present the fund has, according to various experts, somewhere between SUSII.OOO million and

SUSIfT.OOO million available for this purpose. Mexico is expected to need about JUSSOOO million which, in the opinion of some officials, leaves a precariously thin cushion if several big 'international borrowers run into trouble at once.

Although the big Western nations have agreed that the I.M.F. will need extra funds, the United States is resisting a big increase. It argues that the fund’s resources are already sufficient and insists that an increase could lead the I.M.F. to relax the tough conditions it imposes on nations receiving help. Instead of a significantly expanded 1.M.F., the United States Secretary of Treasury. Mr Donald Regan, wants Western nations to put together and control an emergency or crisis fund of between SUSIO,9OO million and SUSIS,OOO million, to be used to restore confidence in the world banking system, in the event of several.defaults.

For their part, developing nations feel plans to expand the resources of the fund do not go far enough. They want relaxed lending conditions and a sizable increase in their global spending power through the creation of more world money in the form of the I.M.F.'s “special drawing rights” pool.

Another key issue at the meeting will centre on the

resources to be made available to the world’s poorest countries, nations that lack the national income and export earnings to borrow large sums of money even under the best circumstances. Nations said to be in this category include India, Ban-. gladesK Pakistan. Chad. Ethiopia. Svria and Tanzania. Since 1961 the World Bank has provided them with vir- ; tual grants in the form of highly concessional loans J through an affiliate known as /■ the International Develop-;: ment Agency. 1 ///' Replenishments ito thfiji I.D.A. are negotiate# ever?/' 1 three years, but the. fundiitf I programme is in a itate A crisis and this is also a hg i issue to be hammered oui i The United States ./as i failed to live up to its pr/T 1 ” : ises to provide its shari' of < the SUSI2.OOO million : ated for the period 1980, to June 1983.. J Because of changes in ex- i change rates from th? time < the I.D.A. funds were negotiated in 1979, the SUSI2.OOO i million is worth JJSIO.IOO j million today in United i States dollars. ' The United Sates had agreed to provide 5U5300.200 i million. , However, Congress has g ] voted only SUSIOO.2OO I million, which means that I the I.D.A. has a shortfall of 1 SUS2OO,OOO million. I

Bs*ause the United States has’iot met its commitment, othf countries, including Capda, have also withheld furfs. (his has meant that poor cpntries in urgent need of hep have not been able to oF.ain the assistance they hve been counting on, with imaging effects on development prospects. . / The failure of the United ptates to honour its international obligations is only part of the LD-A. crisis. Recording to one survey. ; By next June 30. the I.D.A. could be broke and negotiations for replenishment covering 1983-1986 are not yet completed. The survey said that unless special interim arrangements are negotiated soon, the poorest nations could be forced to borrow at high commercial rates if they can find the money. More likely, they will have to cut back programmes to meet nutrition, health and other essential needs. Some observers believe that this issue is more important than any of the others expected to be in the spotlight at the I.M.F. meeting. The main clash is that Western nations struggling with their own problems may well be reluctant to boost their help to poor countries which are now struggling to meet big aid programmes.